Exploring and keeping readers up to date with the growing economic and political ties between China and South America. Including all the good stuff: Commodities, Energy, International Finance, South-South Cooperation, Microfinance and more

Rio Tinto and China's Baosteel, recently announced a joint venture deal, which China now argues exports iron ore, (one of Brazil's major exports to China) at a fair market price while Australia's BHP Billiton does not...

Interesting being that it cost $45/t more to ship Iron Ore from Brazil to China than it does from Australia to China. Despite the distance, the recent 100% increase imposed by the company (BHP) on Australian iron ore, makes iron ore from the Australian mining giant with more expensive ore than China can obtain 1000's of miles away from its Brazilian counterpart.

Dangerous move for BHP, but in the end it might work out considering that BHP and RIO combined export about 80% of the world's iron ore, even if RIO can hold out for a while and BHP feels the pain from the Chinese boycott, the global macro economic conditions of the commodity market, combined with the market share BHP currently retains may force RIO to raise its prices as well.

"In reality, Vale- Rio Tinto (RIO) and BHP account for 80% of global [iron ore] mining needs. Demand is higher than supply and it's hard to imagine one of these players leaving this market, or selling iron ore at spot prices, which could be bad for everyone," said Pedro Galdi.

"I do believe this is going to become a duel of giants but it's still too early to say that BHP is going to be selling at spot prices during this year, especially with its acquisition attempt of Rio Tinto. We have to wait until June 30 to see what is going to happen," Galdi said.

I'll admit... I jumped on the "bandwagon" of Chinese IPO's in early 2007, through the form of Xinhua Finance (XFML). I analyzed the stock as I did most my other Chinese picks at the time. With little history on the company, horrendous management (at the time), little clue on how to deal with press and transparency. What So as a result...

I made the investment with a simple macro-economic analysis of the Chinese market, believing the stock's debut on the NASDAQ at around 11-12/share as a fair price. After a year of turmoil both within the company, in Asian markets, and with global markets around the world in general the stock has sat and done little except inch it's way down to the current price of $2.66/share. The "good times" in 2006 had gotten to me as they had many people playing Asia.

Good news is on the horizon... just in time for the Olympics which scares me a bit, especially considering I'm sure XFML, which has a decent amount of debt, is hoping the Olympics boost their "brand," and that the advertising projects it has been hired to do for the games actually bring in some solid revenue... which would also help their share price.

Raising money in the current market would be hard. XFML suffered some bad publicity earlier in this year, do your own research if you want details since much of it in my opinion was based off unfounded facts, over-exaggerated and politically motivated.

They hired new PR, reshuffled their board and management, have revamped their main financial news page: http://www.xinhuafinance.com/en/, acquired some nice companies for decent prices this year, saw revenues rise in all their current operations (including print media), got some nice projects for the Olympic games, and are about to expand into sports media-- a largely untapped market in China.

Now to top it all off, this morning in my mail box I was sent a pleasant news break on the company, informing me Freddy Bush, the CEO and Independent Directors Purchased Company Shares due to their feeling of the company "being undervalued." Generally good news.

Not saying go out and buy, this website represents my opinions, commentary and analysis alone and not the actual course of events that will play out. Please invest with caution.

For full article regarding the purchase made by the CEO and other directors click here for Yahoo Finance's link to it. I'll copy the companies performance once again of XFML since it's debut last year.

Beginning in September of 2007, I started to get accustomed to reading reports of slumping consumer confidence in China. Every month, Xinhua Media, one of China's premier financial information and media service provider emails me a copy of their benchmark consumer confidence index they started in April 2007. This month (June), consumer confidence inched up for the second time since September of 2007, the other gain being the month of March-- which can partially be attributed to recovery efforts after a week long freezing snow storm which crippled southern China in late winter.

In this case too, investors should remain cautious, as the analysis released along with the new figures in indicate, confidence rose in certain areas of China and dropped in others. Among China's major cities, consumer confidence rose in Beijing and Ghuangzhou while it fell in Shanghai. Overall, below is long-term picture of the Xinhua Finance eziData China Consumer Index.

Beijing's gain can be attributed in large, due to the upcoming Olympic games in August. Overall gains in the index, as described in the report can be attributed to two major factors;

"continuously easing general price rises due to the central government appreciating the RMB (yuan) and acting correctly to stem inflationary pressures. Second, encouraged patriotism among average Chinese from the Wen Chuan earthquake rescue efforts, which in a very abstract sense thereafter encouraged consumers to remain more enduring when facing difficulties."

Now the investor at this point should ask him/her self... Is it time to get into China? Big names like Jimmy Rogers say yes, but realize they know the market beyond just the scope of China. Rogers knows and analyzes much of his China picks within the larger context of Asia and more particularly, the global commodity market.

Jimmy Rogers for instance has recently focused on Taiwan's market, and made comments on Japanese stocks being relatively "under-valued." This does not mean it's time to pour your assets into stocks from the mainland, although major financial media that blizt's viewers with anything he says have interpreted it as such.

For the long term investor out there... It is difficult with a lack of transparency and speculative investment in many Chinese ADR's, to really value most stocks accurately. No less, here are some equities on my China watch list, two of which I currently own.

Note I do not own all these stocks, I'll admit to buying shares of XFML and CHCG.OB recently, and that I used to own CAGC.OB, but, I no less still follow these stocks and feel these five in particular have become more attractive in light of recent pull backs, leaving XFML, CHCG and CAGC under-valued by the market.

GRO and CHNR less so, and I know less about the two companies leaving me apprehensive about investing in either. I also question the true profitability of CHNR, which I feel has a great deal of hidden debt will find the Iron, Zinc and Copper mines in operation and their exploration projects within China will not yield as much raw material as the company has projects.

1) Xinhua Finance - XFML, as described above is a leading provider of financial news in China. The company I receive the monthly consumer confidence report from, and which I am personally invested, is involved with more than just financial news. They provide advertising services to upscale Chinese firms, own the rights to certain TV stations in China, own newspapers (which are not suffering declining circulation as they are in the US and still used as the primary medium of obtaining news in the mainland), among other operations.

Tuesday, June 24, 2008

Using the great and free online personal finance management site "Mint," I have been able to monitor all my personal expenditures from my various bank accounts and credit cards.

Since the month of September, I've seen my expenditure on food increase roughly 20% and my gas expenditure has increased about 70%. Since August 2006, when I purchased the car, the cost of filling my tank has more than doubled.

If price rises are really hitting home in the United States, the cliche "world consumer," this pinch is definitely affecting the emerging world. IMF, chief Dominique Strauss-Kahn urged Latin American leaders on Monday "the rising threat of inflation in Latin America, urging policymakers to take steps to contain the shock to prices from energy and food."

He continues, explaining "The task for policymakers is to ensure that the initial impact of the supply shock on prices is contained and that macroeconomic policies successfully prevent higher inflation from becoming entrenched in expectations and wage demands"

“In the short term the challenge for Latin America is inflation. The region built credibility in the last decade and that credibility is now being tested”.

Strauss-Kahn's comments as the world as a whole attempts to fight inflation and ride the wave of problems resulting from the global credit crunch and sub-prime mortgage crisis in the US.

Monday, June 23, 2008

I am intrigued, as usual, by the fact I am only able to find a few sources in English which have covered the recent development in Sino-Venezuelan cooperation. I suppose this is one of the main reasons I started this site-- to share developments in the works between China and South America, which go largely unnoticed in the West.

As described in a recent article published by BNAmericas, Venezuela's state oil company PDVSA (Petroleos de Venezuela S.A) and China's state oil company CNPC (China National Petroleum), have entered into a joint venture in which the two government owned oil conglomerates will work together in order to produce 8 new oil rigs by years end in Venezuela.

This adds to the two oil rigs delivered by CNPC in November 2007, and three more to come in 2009, bringing the total number of "made in China" oil rigs operating in Venezuela to 13. This will also allow Venezuela's PDVSA, for the first time in the country's history to construct their own oil rigs domestically... without North American or European assistance.

Don't get too excited... This it is not major sign of political or economic unity between the two nations. At least, not on the level Venezuelan state media is reporting it to be. Want proof?

Chinese media has virtually ignored this development, as they usually do with most things concerning Venezuela. China does not want to attract the attention of the US or Europe by dealing too closely with Chavez.

The most recent article published by China's state media, Xinhua, I can find on this subject (in either Chinese or English), is dated May 13, 2008.

Granted my reading ability in Chinese is far from perfect, however searching the words "petrol," and "Venezuela" can usually lead me in the right direction and allow me to find a story pertaining to the topic I am searching for. From what I am able to comprehend in this Chinese article from May, I personally do not feel it is directly related to the deal discussed on June 23, 2008 on BNAmerica's website.

Chavez would like to consider China a strategic ally, both on a political and economic level. As the world's second largest consumer of energy, the match seems to fit... Too bad for Chavez its quite costly to ship Venezuela's heavy, dirty crude oil all the way to China.

Second, Chavez has unrealistically already raised China's economic position and importance for his country right next to the spot the US still occupies. This is hardly feasible to imagine considering Venezuela and China's geographic locations.

Third, Venezuela's trade with China is inconsequential compared with Venezuela's trade with the US.

Fourth, when you compare China's trade with other Latin American nations, Venezuela's trade is insignificant when compared with China's current trade with other nations such as Brazil, Chile or Argentina.

Last, and perhaps Hugo's biggest mistake, is thinking China would be willing to extend it self to a country which is not only in the "back yard" of the US, but also a country which currently is not on good terms with US. Chinese culture, tradition and history have shown the Chinese have a tendency to avoid potential problems that could threaten "peace" or "stability," and a more significant relationship with with Venezuela would therefore be risky.

China has no interest in antagonizing the US, which remains China's major trading partner in the global economy. For now, China's outbound investments will be focused in projects such as the one discussed above. PDVSA will retain a 85% stake in the project, leaving 15% to CNPC. Total investment is projected to be roughly $430 million usd.

Quite small, when you consider for China's new sovereign wealth fund has about $300 billion usd sitting in reserve, waiting to be invested.

**Useful hint for readers **

It is easy to translate English words into Chinese characters without a pinyin input system using this great Chinese-English online dictionary / translator (dict.cn). After you find the characters for the key words you're looking for use "ctrl + f" or "apple key + f (for mac os)," to search for them in a article. Petrol = 汽油 (qi you) , Venezuela = 委内瑞拉 (wei nei rui la).

Apologies if entries this weekend where a bit "lacking." I was traveling and simply had little access to computers.

Following up to this mornings post, in which I discussed in brief the tremendous untapped agricultural capacity of South America, emphasizing Brazil and Argentina, I present the other side of the story via this video from Reuters.

Bolivia, South America's poorest country used to feed over half a million people using UN donations. Those same donations, in the wake of rising fuel costs, can feed a mere 200,000 today, leaving many with empty stomachs as the video above describes.

The question remains... Yes, no one doubts the "richness" of Latin America, but how do you translate natural resources or un-tapped agriculture potential into sustainable development? Second, how do these countries keep their resources from being exploited by multi-nationals or corrupt and greedy locals?

Most Latino's learn in school and as they grow up their countries are richly endowed with resources, giving their countries the potential to emerge from poverty and develop their countries. Sadly, this has not been the case for any Latin American country, perhaps Chile being a unique example once again.

Chile did succeed to a certain degree in this, putting much of their copper wealth towards sustainable economic development goals. The Chilenean economy emerged significantly more competitive and efficient compared to its neighbors in South America.

Let us not forget the high-cost and much suffering on the parts of some people who lived through the Pinochet dictatorship and the reforms of the "Chicago boys."

Bolivia, itself, in the past 15-20 years has developed its own agricultural capacities in the low lands of the country. I learn new things about Bolivia everyday, society is quite fragmented between the mestizo population (and European descended), and the indigenous community. Despite social and racial problems, a countries people, endowed wit vast resources as Bolivia should not be going hungry.

Bolivia is a unique country in South America, the good man Erneste "Che" Guevara called it the "heart of the America's," and that it is. I hope to see the country with my own two eyes one day before I pass further judgment, but no less, regional methods or a more cohesive internal movement should be put in place to at least alleviate malnutrition and hunger in Latin America.

The continent is poor, but always prided itself as being a poor continent which at least "did not go hungry." This age old myth (yes... myth), is now also on the verge of disappearing as food prices around the world continue to rise.

No less, the current picture of the global economy remains quite gloomy, and leaders around the world will be desperate to keep their people from going hungry, including the countries of South America.

South America, in particular Argentina and Brazil, currently have found themselves as possible answers to world food shortages and sky rocketing prices.

Ironic as large portions of the population in these countries and South America as a whole live in poverty and struggle on a daily basis.

Central and South America as they have been centuries, are stuck within greater global economy with a image they have found hard to shed. Articulated very nicely in Michael Reid's book "the Forgotten Continent," mentioned in earlier posts, as follows:

"Latin America has often been condemned to failure. Neither poor enough to evoke Africa's moral crusade, nor as explosively booming as India and China, it has largely been overlooked by the West."Click here to purchase the book

Sunday, June 22, 2008

Spain advances to the semi-finals in Eurocup 2008, after years of "La Madre Patria'' (the mother country), entering international championships with world quality and internationally top ranked teams... yet always falling short of expectations.

Hopefully the Spanish economy can make such a come back, as my last post indicates, their position in Latin America has grown in the past years and their FDI is crucial-- especially to countries like Cuba and even Peru and Argentina which few can deny are dominated by Spanish banks, telecommunications and construction. Perhaps "dominated"is not the correct term, but rather, lets me describe it as Spain's growing market presence in Latin America is significant and growing.

Peruvians, despite many expressing their anger over Fujimori's government signing of what many consider monopolistic rights to Telefonica of Spain, realize Spain is an important partner in the international community.

Telefonica did come to control the majority of the Peru's telecom sector, and they do charge very high prices for their services in Peru, Spain no less is a important source of FDI, in addition to China, the US, and Europe as a whole.

Latin America continues to grow, and achieve healthy growth rates when compared to other countries and regions in the world economy. Spain knows Latin America is a region they strategically have a advantage over other countries due to the similarities in language, religion and if I might say...

The United States re-placing Spain as the "imperial power'' or ''empire.'' Today, as of 2008, I believe it is fair to say the failures of the neo-liberal reforms of the 90's in Latin America. Combined then with the fact the Bush administration in the US has largely ignored Latin America for the past 8 years, has greatly helped Spain's image in Latin America, along with China, India, Europe and other countries around the world.

Spain, however, is a unique partner in the fact, much like Britain, the countries of Latin America have inherited certain traits and characteristics from the ''mother country.'' Second, Spain recently grown quite wealthy in a short period of time, they are in a position more than ever to invest, initiate cooperation and work with Latin America towards helping each other-- in economic, political and cultural respects.